The thorny issue of digital wallet funding
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The thorny issue of digital wallet funding

EXPLAINER: A shift in stance by the government has legal analysts considering whether the scheme financing passes muster

Mr Srettha's government plans to rely on budget expenditure for its flagship digital wallet scheme. (Photo: Chanat Katanyu)
Mr Srettha's government plans to rely on budget expenditure for its flagship digital wallet scheme. (Photo: Chanat Katanyu)

The coalition government led by Prime Minister Srettha Thavisin made a significant pivot on its flagship scheme, which aims to hands out 10,000 baht each to 50 million Thais via a digital wallet, shifting from government borrowing, which drew sharp criticism and raised concerns about potential violations of financial and fiscal discipline regulations.

Instead, the government opted to utilise funds from the annual expenditure budget, which is the original approach the ruling Pheu Thai Party employed to garner support during election campaigns.

The funding structure for the digital wallet project, which requires a substantial budget of up to 500 billion baht, stems from three sources.

First, the budget expenditure for fiscal 2025 is 153 billion baht.

Second, under Section 28 of the State Fiscal and Financial Discipline Act, utilising funds from the Bank for Agriculture and Agricultural Cooperatives (BAAC) worth 172 billion baht. The government is expected to reimburse this budget expenditure at a later date.

Third, expenditure management from the fiscal 2024 budget worth 175 billion baht, which partially comes from the central budget.

Q: Does the quasi-fiscal policy constitute a public debt burden?

Government expenditure via Section 28 states that state agencies are tasked with helping to support state-sponsored projects by allocating money in advance, while the government pledges to reimburse these expenditures later.

This expenditure method is termed "quasi-fiscal" and the debt incurred through this channel is not considered public debt.

Section 28 specifies that assigning state agencies to carry out activities, measures or projects, with the government bearing the responsibility to compensate for expenses or revenue losses incurred in such operations, should only be done in cases where it falls within the legal mandate and authority of the agencies, aligning with the objectives of respective state agencies for the purpose of economic revival or stimulation, enhancing livelihood, or improving the quality of public life. This can also involve assistance for the recovery of those affected by acts of nature or sabotage.

In this assignment process, the cabinet must consider the potential fiscal burden on the state, both present and future, and its impact on the operations of the assigned state agencies. The government must also outline its fiscal management strategy and the consequences of such actions.

The total outstanding burden the state must compensate for under this provision must not exceed the rate set by the committee for state agencies assigned under Section 28, regardless of whether the assignment occurs before this royal decree is enforced, appraising the financial cost and management plans the state will bear for these activities, measures or projects, and informing both the committee and the Finance Ministry.

Q: Can the BAAC's money be used to support the digital wallet project?

There is a legal discussion regarding whether the BAAC can legally proceed with this populist initiative as Section 28 states that utilising funds through state financial institutions is permissible only within their legal mandates. For the BAAC to utilise funds for this project, it must align with the core objectives of the bank.

As a consequence, whether economic stimulus via a digital wallet aligns with the responsibilities of the BAAC is being debated.

The cabinet meeting on Tuesday delineated the objectives of the project: to invigorate the economy by fostering monetary flow in all provinces, easing the burden of living for Thais, and improving the quality of life for people needing assistance, including vulnerable groups and farmers.

The scheme is meant to strengthen economic resilience and self-reliance among these populations and communities, as well as increase opportunities to improve people's livelihoods, according to the cabinet.

The scheme also aims to promote the development of digital technology innovations to benefit the economy and society, noted the meeting.

According to the government, these objectives align with Section 9(3) of the BAAC Act, which indicates the BAAC operates as a financial institution for rural development, providing financial assistance or management to individuals, groups, entrepreneurs, village or community funds, or organisations established to support the livelihoods of farmers or communities. These goals are meant to promote the efficient development of agricultural products, including through investment, production, processing and marketing, as well as to strengthen the community's economy or improve the quality of life.

To ensure legal compliance, the government is referring the matter to the Council of State to help determine whether the BAAC law allows it to utilise provisions of Section 28 to use the bank's funds to support the digital wallet project.

Q: How much does the government already owe the BAAC?

The BAAC is considered the government agency with the most projects assigned under Section 28.

The government owes the bank around 600 billion baht, excluding interest.

Each year, the government allocates a budget of around 60-90 billion baht to repay its outstanding debt to the BAAC.

The funding structure for the digital wallet project, estimated to cost 500 billion baht, stems from three sources.

Q: What is the purpose of the Section 28 rule?

The genesis of Section 28 stems from the aftermath of the military coup in 2014, led by Gen Prayut Chan-o-cha, head of the National Council for Peace and Order (NCPO). The NCPO observed that employing populist policies through state financial institutions, or quasi-fiscal policies, might not be conducive to the financial and fiscal discipline of the state.

These concerns were incorporated into the State Fiscal and Financial Discipline Act of 2018 to establish stricter criteria and frameworks for expenditure through quasi-fiscal policies.

Initial implementation of the rule created a State Fiscal and Financial Discipline Committee, chaired by the prime minister, setting the spending limit via Section 28 at no more than 30% of the expenditure budget. However, during the pandemic crisis in 2020-2021, the government increased the ceiling to 35%. Following the pandemic, the maximum level was reduced to 32%.

Paopoom Rojanasakul, secretary to the finance minister, said recently after the government endorsement of utilising Section 28 for the digital wallet project that by allowing the BAAC to allocate 172 billion baht to support the initiative, the spending ceiling for Section 28 would only be 30% of the expenditure budget.

The government increased the expenditure budget for fiscal 2025 by 152 billion baht, reducing the proportional budget limit under Section 28.

Q: Is Section 28 funding legal for such projects?

Nonarit Bisonyabut, senior economic researcher at Thailand Development Research Institute, said in principle he disagrees with large-scale economic stimulus via a digital wallet project, which carries a significant cost of 500 billion baht.

Current economic conditions do not necessitate such a large-scale economic stimulus, said Mr Nonarit.

The government's choice to utilise funds from the yearly expenditure budget has placed its spending under close scrutiny by both parliament and various organisations such as the National Anti-Corruption Commission.

As a consequence, the government has taken measures, such as appointing committees to probe potential corruption issues, he said.

Expenditure through Section 28 complies with the legal framework of the State Fiscal and Financial Discipline Act, which sets conditions and maximum budget limits to avoid affecting fiscal discipline, said Mr Nonarit.

If the government can adhere to these laws, funding of the scheme should be deemed legal, he said. If the government decides to expand the Section 28 spending limit beyond the current level, Mr Nonarit said he disagrees with this move.

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